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More precisely he said IBM wasn't growing (meaning MS was), was smaller than what it used to be and didn't offer a long-term benefit. In short. . . they were a train wreck waiting to happen.
IBM's Palmisano indirectly responded at a government hosted conference noting there are times when you have to discard stuff you love and move on to greener -- more profitable -- pastures, even when it is uncomfortable.
You know cast off stuff like:
- typewriters
- PCs
- Punched cards/readers
- Hard drives
Things that are past their prime or have become commodities. Not easy for some he noted, saying for some it "a cultural resistance to change."
Pretty good response considering:
1. if Gary Kildakl hadn't gone flying or on vacation (depending on who you believe) Monterey would house a huge campus, not Seattle
2. if Bill hadn't dropped a $50K check for DOS we might still be using CP/M
3. if IBM had realized that 1s and 0s were more valuable than hardware they might have become a software, service company sooner
From Ballmer's perspective bigger is always better. Palmisano feels growth and prosperity comes about by shaking off institutional inertia and facing up to reality. . . the market, industry trends, consumer/customer demand/needs. For IBM the decisions may have been painful at times but have been successful. They've grown but in a different direction.
But for a legion of business carcasses growth has been a direct cause of failure. The truth is, no one wants to stand still. Status quo isn't in the genes of the industry's management and engineering leaders. It isn't what people sign on for and it isn't what people invest in.
Bigger, Better
Name a company -- any company -- it was founded with one objective: growth...to gain greater stature and increase profits. Oh sure men and women do it to make a contribution, to make a difference.
But the organization gets its funding because it will gain stature in its market area and deliver profits! And why not? No matter which way you turn you're constantly bombarded with "bigger is better".
Look at the business news -- print, online, TV. No one devotes space to a company that's growing slowly or maintaining status quo. . . profitably. Business and financial sections aren't to blame for highlighting/focusing on the growth of companies, growth of stocks, growth of industries. After all, people only want to know about companies that win large or lose large. They want to associate with the winners.
When they invest their money or sweat equity, they choose companies that will not only contribute to the industry and society but also will grow in sales, profits and market value. The desire to grow is compulsive, some might say addictive. Unfortunately for many management teams, growth for the sake of growth has become the all-consuming objective. Every other goal takes a back seat to this golden grail. Don't get us wrong. Growth isn't bad. But it takes a lot of planning, preparation, hard work to keep your engine of commerce moving forward.
Your Objective...ROI
Growth and size may contribute to an organization's temporary wellbeing, but they offer no assurance of long-term health. Each of us knows of companies that rang up tremendous sales for a period but went down in gallons of red ink.
Growth was achieved by losing money on every sale! Don't let anyone kid you, no one ever made it up in volume.
Profit isn't measured in revenue generated but rather in terms of COG (cost of goods) and ROI (return on investment).
When it's your sweat equity and funds that are involved, the concept of ROI takes on an even greater meaning. At a recent storage conference Eli Harari, president/CEO of Sandisk, noted that manufacturers (by implication his included) had to get a better handle on their production expansion and pricing. Over the past few years (to the delight of corporate IT and individual consumers) the average selling price per GB of flash memory has declined an average of about 60 percent.
Cool!
Problem is production cost only declined an average of 54 percent per GB. Using non GAAP (generally accepted accounting principles) and not taking inventory costs into consideration profit margins. . . suck!
Five-Year Plan
These shortfalls happen frequently in the PC/CE/communications industry where market analysts -- and manufacturers -- forecast a market's health five years in the future. Everyone works on their one, three, five year projections planning production capacity, volumes, sales. During that period they are confident they will rightfully garner 20-25 percent of the market. Unfortunately, somewhere along the way some idiot decides he (or she) wants 30. . . no 40. . . no 50 percent market share.
Real market growth and a sour global economy have no place in their planning/decision making process. Production is ramped up to meet the projected demand. When sales don't meet projections, prices are dropped accordingly.
In desperation and to keep production busy, they flood the market with product at unbelievable prices.
Cash flow goes south.
Achieving Growth
There are many other methods for achieving growth--but none are a sure thing. For example, there is the development of a totally new and different product for which there is a real but as yet unrealized demand. Unfortunately, most of the people who developed these breakthroughs in the past never made "the big bucks".
That went to the second or third outfits to enter the marketplace, or to the people who picked up the idea after the breakthrough didn't quite make it. Often the timing just wasn't right. It was an idea ahead of its time.
Hype surround the product or technology builds huge interest and often overly optimistic expectations by the market analysts and press -- more precisely the technically adept media folks -- but ordinary folks get left behind. In the Silicon Valleys of the world "we" are the norm and "everyone" knows about, wants, needs the solution! Somehow the demand doesn't meet the forecasts.
That's why it took so long for products to achieve 50% household penetration like:
- 16 years for cellphones
- 20 years for color TV
- 21 years for PCs
- 12 years for CD players
- "only" 5 years for DVD
Firms that are hell-bent for "assured" growth focus on improving products, concepts or systems to make them competitively superior. Competitive superiority often gives you the edge that is so necessary in today's fast-moving industry. A third method for achieving growth can be readily seen in the industry today. It often accompanies and enhances the other two methods, That is, the development and execution of strong, sometimes brilliant marketing strategies and programs.
Granted, no one in this industry has a corner on the marketing brains, but as a group, they are increasingly becoming attuned to the fact that marketing-- not technology--is selling hardware, software and related products to business people and consumers.
Observe, Track
Apple is perhaps the best example firms watch and attempt to mimic. They humanizes their products. They developed distribution and package systems that were "palatable" to the buying public(s).
Just consider:
- iPod and the MP3 player
- iPhone and the cellphone/smartphone
While engineers will disagree with us, it doesn't really take a lot of excess grey matter to develop a product. It does take a strong, committed, creative and dedicated marketing focus to make it sell--and sell big. But none of these methods assure growth in and of itself...not to the degree company management want and need.
So another dimension is added:
- product lines expansion
- product diversification
The adding and mixing of these ingredients often produce additional growth and profits. They can also create tremendous marketing problems. It's the old good news/bad news routine. At some point you'll need to add overhead in store footage, inventory, assembly/development people, support personnel, marketing and sales staff and activities.
There's a point of delicate balance between present size and objective as well as the financial commitment needed to deliver growth. It is an investment phase many presidents, boards of directors, shareholders find it difficult to come to grips with.
No management can guarantee the profits from new product or new market development. Nor can they say how long that return on investment will continue. Management must constantly monitor the firm's product lines, product mix, customer mix along with competition, market trends, general economy.
Vertical, Horizontal Development
Growth comes basically in two forms -- horizontal and vertical. Loosely defined, vertical growth is that which comes from established sales. Horizontal growth comes from new products, new market areas, new directions. Generally vertical growth is profitable since it adds profit with a minimum of additional capital outlay and minor increases in manufacturing, warehousing or marketing overhead. Most of the growth goes to the bottom line.
But horizontal growth can also yield solid growth and profits. And it can spread risk across a broader playing field.
It often also requires changes in the organization, more overhead and operating investment and new channel and communications expenses. While these overhead and operating expenses affect your bottom line in the short haul they can deliver more profits and open more doors as the company moves forward. Regardless of the path the company takes, growth is not only necessary for survival, it is an integral part of the organization...any organization.
Choosing the best alternative is one of reasons being a senior manager is such a role of quiet desperation.
Markets Meet Your Expectations and Objectives.
Management has to constantly keep in mind that their business is like a bucket they fill with cups of water.
Every component or ingredient they add puts another cup of water in the bucket. When the bucket reaches its capacity, water will spill out--a dilution of efforts in other areas resulting in profit losses--or another bucket has to be added in the form of a new or additional production, support and marketing team. There's no easy answer as to what should be done when the first bucket becomes full.
There's no pat answer on how growth can be achieved or which avenue is best. The only way it can be done is by studying and analyzing your problems (opportunities) and developing the best "insurance" alternative(s). Then pursue the alternative(s) long enough to accurately test and measure them. And despite what anyone says there will become a level, a point where big enough will be enough.
All you have to do is be prepared to recognize it.
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Undercover author Miles Weston has spent more than 15 years in the optical storage, software and video industry, indulging in, among other things, marketing activities in promoting MO, CD, DVD technology and its applications. Contact Miles through his editor by clicking here.Related Sites: Digital Producer , Audio Video Producer , Corporate Media News , Presentation Master , Oceania
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